*Indiabulls Housing Finance – Business Update – Post RBI’s rejection of merger with LVB, Co to embark on a new business model*
*Update on liquidity*
• Co securitised ~Rs. 25,000 Cr worth of loans in the last one year as against the same amount it securitized in the preceding 3 years cumulatively.
• Co receives ~Rs. 7,000 Cr of repayments from customers every qtr (~Rs. 28,000 Cr on annual basis). Plus Co has ~Rs. 20,000 Cr of cash i.e. 20% of balance sheet. Co intends to maintain cash between 20-25% of its balance sheet size in future.
• LCR (liquidity coverage ratio) stands at 552% as against regulatory requirement of 60%.
• Co is holding 4x the average liquidity of the cos in NBFC sector.
• Current liquidity covers all repayments for next 12 months.
• Co’s ability to avail funding from Banks and MFs remains intact. Co raised $0.5 Bn in first 11 days of Oct from banks, securitisation and CPs.
*Wholesale book to run down entirely over next 3 years*
• Commercial RE exposure has been reduced by ~Rs. 9,000 Cr since Sep 2018. Dependence on wholesale assets is now much lower at ~Rs. 17,000 Cr (16% mix in Q1FY20 vs 21% mix in Q1FY19). Co will continue to run down developer loan book and will focus only on retail book now.
• Co expects reduction of ~Rs. 2,000-3,000 Cr every qtr via securitization & refinance and should run down to half its today’s size within next 12-18 months and extinguish entirely over next 2-3 years.
*The asset light new business model is based on Co-origination & Securitisation*
• As per the co’s new business model, 32% of loans originated would be on the co’s B/S while 32% would be in the form of co-origination and 36% in the form of securitization.
• Under the co–origination model, Co will hold only 20% of assets & 80% will be held by banks. Co would get entire processing fees, origination fees (to be paid by the bank on its 80% loan) and ongoing service fees on this portfolio. Co will be accountable for sourcing & servicing expenses and for 20% of credit costs as well.
• Co-origination arrangement has been signed with BOB, and tie-up with SBI is in process.
• Optimum blended roe under this model will be 26% as per the Co.
• Thus Co will leverage its distribution strengths in this new business model.
*Other highlights*
• Co is rated AA+ by all domestic rating agencies.
• Independent directors include 2 ex deputy governors of RBI.
• Co has received certain sanctions under the partial guarantee scheme.
*Financial Outlook*
• B/S to remain at around ~Rs. 1,00,000 Cr.
• B/S will grow at 8-10% from FY21, while AUM will grow at 20%.
• C/I will continue to decline by 50-60 bps every year.
Stock trades at 0.5x TTM P/B